PRESS DIGEST- Financial Times - Feb 20
Feb 20 The following are the top stories in the Financial Times. Reuters has not verified these stories and does not vouch for their accuracy.
Overview -- Centene Corp. recently announced that its operating results likely will be significantly worse than expected, which has reduced financial results for full-year 2012. -- We are revising our outlook on Centene to negative from positive and affirming the ratings. -- We could lower the rating by one notch if the company continues to post poor results. Rating Action On June 11, 2012, Standard & Poor's Ratings Services revised its outlook on Centene Corp. (CNC) to negative from positive. At the same time, we affirmed our 'BB' long-term counterparty credit and senior unsecured debt ratings on the company. Rationale The outlook revision resulted from Centene's announcement that it expects year-to-date June operating results to be significantly worse than expectations, which will affect financial results for full-year 2012. The results were driven by higher-than-expected medical costs in its Kentucky Health Plan and the Hidalgo service area in its Texas Health Plan, as well as in the Celtic individual health business. We have revised our adjusted EBIT return on revenues (ROR) margin expectations for 2012 to about 2% from the 3%-4% range. EBITDA interest coverage (including imputed lease obligations interest) would diminish to about 7x from our previous expectation of 10x. We believe that the expected EBIT margin (about 2%), EBITDA interest coverage (about 8x), and debt leverage (20%-30%) remain supportive of the current rating. Centene has produced very stable and good operating performance during the past five years. Centene's adjusted EBIT ROR in 2011 was about 4%, and its five-year (2007-2011) average ROR was also 4%. Our counterparty credit rating on Centene is constrained by the concentration of its revenue stream in the government-sponsored managed Medicaid programs, with a smaller percentage of premiums coming from specialty services from external customers. This narrow market focus is a key credit risk, as it exposes the company to adverse regulatory and legislative developments. Accordingly, profitability and sustained revenue growth depend heavily on continued government funding for these programs to keep pace with medical cost trends. Outlook The negative outlook indicates that we could lower the rating by one notch if the company's EBIT ROR were to decline to less than 2% for a sustained period or if the loss of one or more of its managed Medicaid contracts resulted in a significant decline in revenue or cash flow from operations. We will consider the new expected level of profitability the reason for the change. If we lower the counterparty credit rating, we would likely also lower the senior debt ratings by one notch. We expect the company to continue to grow and generate stable cash flow in the intermediate term (12 to 24 months) to meet its debt-service requirements and pay for expenses related to expansion into new markets. In addition, we expect the company to keep its debt-to-capital ratio consistent with recent improvements in the 20%-30% range--barring any large acquisitions. We expect EBITDA interest coverage to remain at least 7x and redundancy of statutory capitalization to stay at the 'BBB' level of confidence as per our capital model. We remain concerned that any significant funding cuts and continued pressure from reimbursement rate compression by states to save money could erode the earnings power from the managed Medicaid sector. Benefits structure and eligibility must be aligned with reimbursement levels. Related Criteria And Research -- Analysis Of Insurer Capital Adequacy, Dec. 18, 2009 -- Holding Company Analysis, June 11, 2009 -- Analysis Of Nonlife Insurance Operating Performance, April 22, 2009 -- Investments, April 22, 2009 -- Double Leverage In Health Insurance, Aug. 6, 2008 Ratings List Ratings Affirmed; Outlook Action To From Centene Corp. Counterparty Credit Rating Local Currency BB/Negative/-- BB/Positive/-- Ratings Affirmed Centene Corp. Senior Unsecured BB
NEW YORK, Feb 19 U.S. food company Kraft Heinz Co withdrew its proposal for a $143-billion merger with larger rival Unilever Plc, the companies said on Sunday, raising questions about whether Kraft will turn its focus to another target.
LONDON, Feb 17 John Fallon needs to show he has a plan to navigate Pearson through the sinking sands of its main markets when the world's biggest education company reports full-year results.